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Expert publishing blog opinions are solely those of the blogger and not necessarily endorsed by DBW.

For the fourth straight year, romance book publisher Harlequin has posted revenue declines despite gains made by other large publishers. Romance readers have been early and enthusiastic adopters of ebooks, yet the company’s digital advances haven’t outpaced its print retreat.

So I took some time to talk with Harlequin CEO Craig Swinwood about the company’s results, how it has adapted to the rise of ebooks and self-publishing, and what the future holds for the publisher.

Jeremy Greenfield: Has the rise of ebooks hurt your business?
Craig Swinwood: The market is dynamic, so things are connected. For us there’s a couple of issues around digital that were certainly advantageous for us early on but have become a variance in the past couple of years.

Romance readers were really the early risers on the digital adoption curve. They were the first to get excited about digital reading. So we had a pretty big uptick pretty quickly, particularly in back-list. We have thousands and thousands of titles that weren’t available to most readers because there was no space in physical retail for them. Digital allowed us to offer those titles.

What we’re seeing in the last year or so is a bit of normalization of that back-list trend, which is throwing off comparisons from 2010 and 2011.

Our percentage of digital sales to overall sales is right in line with the industry’s, so we’re taking full advantage of all of the digital opportunities. Harlequin was the first publisher with a digital first imprint over five years ago and we innovated with digital box sets, bundles and original short content very early in the development of digital.

JG: One of the issues Harlequin is having that the company mentioned in its 2013 earnings report is pricing.
CS: E-tailers can discount whatever they want to discount, and they can discount all of our books and none of our books. It’s up to them. We’ve done everything we could to keep a level playing field for all of our stakeholders. When we look at the pricing of mass market paperbacks in the digital space compared to the discounting of new release hardcovers, obviously as a choice the mass market paperbacks didn’t seem to stand up very well when you can buy a new hardcover at the same price or lower. Because we are primarily mass market we didn’t fare as well as the competition during the holiday season and we lost share in the fourth quarter.

From a pricing standpoint, we were seeing digital pricing for new release hardcover and trade paperbooks at or below digital list price for mass market publications. Pricing is having an effect as far as choice goes. In the physical world, mass market paperback as a segment is half the size it was in 2008. Harlequin was overindexed in that segment.

JG: The decline of mass market paperback sales and their unfavorable comparison to ebooks and discounted hardcover books is the culprit then for revenues declines?
CS: When we think about it, there’s transitional pain as we reset the business model. One of the things I feel very strongly about is our strategic imperative to be available however, whenever and wherever women want to shop and that requires us to maintain a physical footprint in some retail locations that are on the margin of profitable from a physical standpoint, but we are committed to supporting both our physical and digital retailers.
We think a lot of that pain is behind us and we’re looking for stability in 2014.

JG: One of the things that has impacted the publishing business as a whole but particularly the romance segment is the rise of self-publishing. How has Harlequin fared now that there is increased competition for content?
CS: The best way to respond to any amount of competition is to provide more value and better quality and I think we do that every day.

One of the things that self-publishing has had is a nimbleness to get to the market very quickly versus a traditional publishing cycle that we’re in. Because of that we started Carina Press five years ago which is our digital-first imprint and we’ve done incredibly well with that. It allows us to expand into different genres and test some things out. Self-publishing is an incubator for creativity. Some of those authors who favor self-publishing probably favor a certain amount of freedom of experimentation that they may not have had with a traditional publisher.

JG: We’ve seen a huge number of self-published romance titles on the Digital Book World Ebook Best-Seller List, many at low price points.
CS: The pricing is the biggest issue within traditional publishing right now. The value perception of books over time will be eroded if people think that free or $0.99 is what a book is worth. We believe that quality can demand a higher price than that and that’s what we’re concentrating on.

JG: What has Harlequin been doing to attract and retain authors at a time when they have more options?
CS: We have the Harlequin Author Network, which is a services portal that allows our authors to look at sales results on a dynamic ongoing basis. It provides social media training, information flow, business trends, publishing trends, a concierge service that allows people to ask whatever question they want. We certainly have embraced the idea that more collaboration from a business standpoint and a creative standpoint between us and our author base is a very important thing. This important collaboration is also evident in the powerful author-editor relationships that are formed at Harlequin.

I realize this is not a popular point of view among traditional publishers, but $30 hardcover novels and $18 trade paperbacks do not strike me as competitive price points versus the many other forms of entertainment available. I for one doubt those old publishing biz models and cost structures will prove sustainable in coming years so hope these large companies are looking outside the industry for strategic guidance.